Michigan Bets The State Pension Fund On Hollywood Success, Ends Up Stuck With The Tab

from the you-can-only-take-my-money-for-so-long,-before-you-take-it-all! dept

We've written before about cities and states luring Hollywood studios with multimillion dollar subsidies in the hopes of giving their local economies a bit of a bump. In nearly every case, this has been a money loser for the locale involved. A 2010 Tax Foundation study found that most states were lucky to see $0.20 in revenue from every dollar handed out. And yet, this surefire money loser remains incredibly popular.

Michigan has 4.5 million individual taxpayers, and the state gave the film studio $39.7 million to shoot the movie in Pontiac. That works out to a subsidy of $8.82 per taxpayer while average ticket prices nationwide are $7.96.

The subsidy was granted in 2010 when the program refunded up to 42 percent of Michigan expenses to film makers — essentially a check from the treasury to Hollywood studios. The program expired, but the Legislature, dominated by Republicans, overwhelmingly decided to keep it around.

As the article points out, the studio basically received paid admission from every taxpayer in the state. But that $40 million was apparently just a "good start," because the state soon found the studio knocking at its door again, cap in hand.

As part of the financing process, the filmmakers wanted to borrow about about $18 million in municipal bonds. In order order to do that, they needed a backer. So the state stepped in, and agreed to use its state worker pension funds as a guarantee. "If the investors failed to pay," the New York Times reported in a piece on the deal last December, "the retirees would be on the hook."

One would expect a Disney-backed venture to be able to scrounge up payments on an $18 million loan simply by digging around in the couch cushions. But one would be mistaken.

Michigan Motion Pictures Studios, which is being celebrated in the local media for having made the movie, "Oz The Great and Powerful," in Pontiac, has missed its last three payments on $18 million in bond obligations...

According to state officials, the state retirement system has made three payments since February of last year totaling $1.68 million.

This isn't good news for the state's pension fund, which is already underfunded by several billion dollars. It's pretty much guaranteed that the state will never recover the entire $58 million given to Michigan Motion Pictures Studio, either in the form of added revenue or even loan payments, for that matter. And Michigan should know better. According to the study mentioned in the first paragraph, Michigan's return-on-investment sits at $0.11 per subsidy dollar.

In March 2012, Raleigh Studio's then-chief financial officer Steve Lemberg blamed the studio’s financial struggles on the film tax credit being reduced.

The state reduced the tax credit from $100 million when the studio was being built in 2011 to $50 million last year. Gov. Rick Snyder has $25 million budgeted for tax credits this year.

There's something inherently flawed with a business model that relies heavily on being handed free money in exchange for the vague promise that a small percentage of it will be pumped back into the local economy. But I suppose it could be worse. Much, much worse.

The city of Allen Park recently requested an emergency manager after losing what will turn out to be tens of millions of dollars on a failed movie studio project that promised to create 3,000 jobs. It created none and left the town nearly bankrupt.

That's the sort of thing that happens when politicians get stars in their eyes and roll out a red carpet made of constituents' money. The best case scenario is still a money loser, as any economic effects are brief and underwhelming. The worst case scenario is taxpayers are on the hook to bail out their own pension funds or, in the case of Allen Park, their hometown.

Seriously

Surely some heads need to roll because of this, people should be in jail for mismanagement of the pension fund and the movie execs should be in jail for fraudulently requesting funds they had no intention of ever paying back. Maybe this will be one of the ways Hollywood accounting will be opened for the IRS to investigate more and maybe the IRS can recoup some of the trillions invested and trillions in profits that Hollywood movies have hidden from them over the past few years.

Great! Focus on the THIEVES! -- But that DOES include pirates...

Yes, there are thieves large and small; the latter don't oppose or even hinder the former, just extend lawlessness and actually help.

My wish is to target the gov't at obvious thieves who are wearing expensive suits and flying on corporate jets: they're stealing the excess value that labor creates. That's Populism.

Civilization depends crucially on everyone recognizing clear rules -- following those rules will always be lacking, yet the principles must be kept clear -- so even stealing from thieves makes matters worse.

Re:

Your mileage may vary...

I've long had a somewhat jaundiced view of film incentive programs -ever since Canada introduced them in a big way in the 90's and all the production left the good ole U.S. chasing the free money.

That said, there are ways to do it right and ways to make a complete debacle of it. Michigan would be an example of the latter. My own state kicks back a few million, and as a result has attracted more than 50 million in local spending (yes, that's only the local portion of the budgets, another big chunk is spent out of state. And before you self proclaimed experts who have never been on a movie set start offering your expert testimony, let me assure you the wages are not all paid to flown-in "Hollywood" technicians, 70-80% of our crew is local).

I know you hate everything related to "Hollywood" because you connect it to shite like SOPA and those asshats in the MPAA, but let's have some perspective here; lot's of corporate interests run the same kind of scams. It's the way big-business is done now. "Hollywood accounting" is no different from "Wall Street accounting" or "Multi-national Corporation accounting"

Hollywood-style cronyism is exactly why we have "no personal gifts" policies for pretty much every public company and accountable local government. I think some states need to crawl up their representatives' practices a little closer.

If I were in Michigan I'd want a deep core tax audit on every official near the "bamboozled" cities and the state reps.

I am sure the jobs are there somewhere

Re:

There was no mention of piracy, much less justification of it. But since techdirt won't justify it, I'll show you how it is done:

Dear Citizens of Pontiac, MI,

Disney has stolen millions of dollars from you. Like with many other loans, they still have collateral. You are now the proud owners of millions of dollars worth of Disney revenue. Take it how you see fit. That doesn't mean download. No, it means download and sell. It means feel free to stream their movies with ads surrounding it. Take ABC, ESPN and the Disney Channel off the air and then stream them from your own websites. According to the maximalists, it won't take long to recover your stolen money. You've been literally stolen from. Theft is theft. Law is the law.

Re: Re:

Seth Said...

When Hollywood Accounting is such a joke that even the Oscars host cracks jokes about blockbuster hits not showing a profit, maybe everyone should take the issue seriously. Really, they signed on for a deal that gave them empty buildings and no gurantee that any profits would come their way? Sad.

Re: Re: Re: Re:

Re: Re: Your mileage may vary...

By share examples I assume you mean states that have done film incentives "the right way"(?)

I don't really have detailed figures, just rough information for my own state. I also know (as everyone in the industry does) that production is booming in New Mexico, Louisiana and the Carolinas (South in particular). And obviously the whole incentive/kickback/corporate welfare program was popularized in the first place by British Columbia and Ontario back in the 90's. I am not an accountant, and I realize there is debate about it, but most people seem to feel those areas have had a worthwhile payoff from their incentive programs.

We all expected the Michigan incentive program was going to be a debacle from the get go. Too much money was promised, there was no way that was going to be worth it. They also didn't have an overabundance of experienced crew -it was never a particularly big production zone before the incentives, therefore a large proportion of the crew flew in from around the country (contrary to popular belief we don't all live in L.A.). Few were surprised at the amount of corruption either, I don't mean to cast aspersions, but the big cities in this area were always known for cronyism and political corruption.

Re: Hmm...

They roam the country, raping and pillaging entire towns, and have the nerve to call infringers "pirates"?

The easy way to fix this is either force the studios to pay back their debts out of their gross revenues, or forfeiture of the IP itself to the public domain for non-payment. Of course, with all of the lobbying, campaign "donations", and other kickbacks, good luck finding a single politician with the chutzpa to stand up to them.

Re: Re: Re: Re:

So, according to the republicans who dominated the legislature, subsidizes are just fine if it's a business like Hollywood, but ordinary citizens? Heck no, they're lazy bums! Hollywood on the other hand? Totally NOT lazy bums!

It would be nice if republicans could actually be consistent on this, instead of having one standard on subsidizes for people and another for subsidizes for businesses. Then I might actually be able to respect them when I disagree with them, instead of seeing it as giveaways to their biggest financial backers and middle fingers to people who didn't vote for them.

and stupid politicians continue to do whatever the entertainment industries want them to do. surely the time has come for even these to see that they are having the piss took out of them?

comment 3

how do those same stupid politicians feel now about their 'friends in the entertainment industries', having stolen, yes. stolen, a town's money under false pretenses, with no intention of giving it back, having had no intention of employing anyone (let alone 3000 locals!), in the first place!

Re: Hmm...

> I wonder how the MPAA shills will spin this one.

The movies are not profitable. And never will be. So subsidies from tax payers are needed. :-) That way the "fees" paid to keep the movies unprofitable can increase as the taxpayer coughs up more dough.

Re: Re: Re:

people figured out long ago that Techdirt is a pro-piracy blog
Bullshit. They figured out long ago that all the reports on Techdirt are making them look even more bad so they've sent clueless shills like you on a quixotic quest to stem the tides, of course to no avail.

Re: Re: Hmm...

"free markets" are great when illegally stealing music and films, "free markets" not so great when people make bad investments.

interesting.

You wanted to know how they would spin it? There you go - this one is spinning it as Mike being opposed to free markets allowing governments to choose investments. Kind of makes your head hurt, doesn't it?

Re: Great! Focus on the THIEVES! -- But that DOES include pirates...

No, you don't. Because the thieves who wear expensive suits and fly on corporate jets are the same thieves populating the RIAA. Otherwise known as your jizz supplier, to which you have a crippling addiction.

so pathetic

Re: Re: Re:

Now why would some studio get relief just because the movie hasn't come out?

They did set themselves up financially to be able to pay for the movie they made, didn't they?

Oh, wait, you mean they didn't?

Risk meet reward. Now, Risk, I've got to warn you, reward isn't just going to throw himself at you. You've actually got to work for it. You might take a fall. But you still have to meet your obligations regardless of how much reward you manage to get. Or don't get.

Re: Right to work for less

Yeah, let's force people to join a union as a condition of employment. Let's add "union dues" to the list of things that are already being taken out of a worker's paycheck. Talk about working for less. And you call other people morons?!

Re: Re: Right to work for less

Well, I'm with you in not being very happy about the rate of union dues. But let's compare what I've made on some shows I've worked on: non-union: made anywhere from sub minimum wage to about 15.00/hour, no medical plan and the working conditions are usually harder. Union: 17.00 to 24.00/hour with excellent medical coverage for me and my fam, and the working conditions are always better. But I pay 3% of my wages in dues. Sounds like union is the way to go -if your serious about making a career in this business.

The politicians behind these ridiculous deals should be on the hook for the full amount of money they so generously offered up from our retirement pension funds, not the tax payers, state workers or the teachers. When the private studio can't pay it's bills then Granholm and the like should have to pool their own finacial resources and they can't pay the bills they have so generously backed with our pension funds then they should be sent to prison for grand theft.